Europe's auto leaders meet EU to discuss overcapacity, weak market
BRUSSELS -- European auto executives met with the European Commission, the EU's executive arm, to discuss ways to tackle the region's overcapacity problem and the general outlook for the industry.
The executives included Fiat CEO Sergio Marchionne, Ford Motor Co.'s European chief, Stephen Odell, Daimler CEO Dieter Zetsche and PSA/Peugeot-Citroen's chief Philippe Varin.
Fiat CEO Sergio Marchionne said a serious escalation of the eurozone debt crisis is too big an event for European industry to plan for. "You can do all planning you like, these are such seismic movements that no plan will work," Marchionne said on Friday at a news conference in Brussels after the meeting.
"One of my hopes is to find a will to achieve the economic stability in Europe, which will lessen the burden on the industry," Marchionne said. "We need a healthy market" to be able to address the industry's "structural overcapacity.
Daimler's Zetsche said Europe's auto sector had experienced "no dramatic effects" so far from the debt crisis, but that the risks to carmakers remained serious.
"Given the weak macroeconomic environment in Europe, the short term outlook for vehicle sales is what worries us," he said.
If EU leaders are able to find a lasting solution to the crisis, European car sales would be stable or slightly lower in 2012 compared with this year, Zetsche said.
"If, on the other hand, the crisis of confidence is further increasing, you would have to calculate with a recession in Europe, which then would have its impact on automotive markets as well," he said.
European car industry body ACEA called in a statement for EU leaders to restore confidence in the eurozone and ensure a stable economy "in which businesses of all sizes can be confident about creating jobs and investing"
Glut of unsold cars
Europe has a growing glut of unsold cars as most automakers continue to churn out vehicles in the face of slumping sales and growing concerns over the sovereign debt crisis and an economic slowdown.
Overcapacity in the region may surge 41 percent to 2.92 million vehicles next year, according to forecasts from IHS Automotive.
Last week in London, Marchionne had said: "The global auto sector has been suffering for years from chronic overcapacity. In Europe, the situation has now reached suffocation point."
Car demand in Europe may decline for the fifth straight year in 2012 to 12.9 million vehicles, down 1 percent from this year and 17 percent from the 2007 peak. Production in the region may slip 2.9 percent to 16.4 million vehicles, compared with a 1.8 percent increase in capacity to 19.3 million, IHS estimates.
Plant closures, lay offs
Fiat is closing its Termini Imerese factory in Sicily and last year General Motors Co.'s Opel unit shuttered a factory in Antwerp, Belgium, the first plant shut in Europe since 2006.
Ford will temporarily lay off 4,000 workers next year at its assembly plant in Valencia, Spain, as demand slackens in Europe while Renault plans to lay off 2,295 workers at its plant in Valladolid, Spain, for as many as 29 days in the first half of 2012 and suspend the night shift at its Palencia plant in Spain from the start of January.
PSA has said it will partially idle its Sochaux and Mulhouse plants in France for 13 days in December to cut stocks.
But European automakers are unable to take bolder steps to scale back production. Political interference has thwarted industry restructuring as governments propped up demand in 2009 with sales incentives and hindered efforts to trim capacity to protect local jobs.
With strapped public budgets restraining the scope for aid, European mass-market automakers may face years of losses as idle workers and equipment cost money without generating revenue.
Marchionne's decision to pull the plug on the 41-year-old factory in Sicily will cut capacity by as many as 140,000 vehicles a year.
"I doubt there is a single European player today that can make money on the strength of the European market alone," Marchionne said during a speech in London. "The lack of a common intervention strategy in Europe, and a failure to act, has forced Fiat to find its own solution."
A new round of aid is unlikely to boost new-car sales. "The probability of governments providing incentives is about zero," said Christoph Stuermer, an analyst with IHS in Frankfurt. "There'll be no backing" for a repeat of 2009 sales incentives, when Germany committed 5 billion euros ($6.7 billion) to boost demand by offering money to scrap old cars. Efforts to prevent job losses continue.
French President Nicolas Sarkozy, faced with an election in six months and the highest unemployment claims in more than a decade, summoned PSA's Varin on Nov. 17, asking him to reconsider plans to cut as many as 6,800 jobs, including temporary staff employed by partners.
PSA, Europe's second-largest carmaker after Volkswagen AG, earlier this year distanced itself from a leaked proposal to close its Aulnay plant near Paris after the government described it as "unacceptable."
Renault CEO Carlos Ghosn pledged in May to make building upscale cars in France a priority in return for support from the government, which owns 15 percent of the manufacturer, to appoint a new chief operating officer.
"It becomes increasingly difficult to see any meaningful restructuring actions at PSA or Renault ahead of French elections in 2012," said Erich Hauser, an analyst with Credit Suisse in London.
Sarkozy's meeting with Varin "illustrates once again just how hard it is to restructure industrial assets in France. "France isn't alone in actively shaping its auto industry.
German Chancellor Angela Merkel brokered the sale of GM's Opel unit, which is based near Frankfurt, tying state aid for the money-losing unit to a change in ownership. The deal fell apart when GM backed out in November 2009 after exiting bankruptcy.
GM, which hasn't turned an annual profit in Europe in more than a decade, continues to struggle to turn around Opel. The company had $900 million in restructuring and early-retirement costs in Europe and cut 5,800 jobs in the region through Sept. 30. Last month, GM abandoned its goal of breaking even in Europe this year.
"When you're running your plants at a utilization of anything less than 100 percent -- and in most of Europe they run at 85 percent -- you're trying to bend the demand curve to meet the supply curve," GM CEO Dan Akerson said at a Nov. 17 event hosted by the Detroit Economic Club.
Morgan Stanley estimates that European carmakers are utilizing about 70 percent of their capacity, with Renault, Opel and Fiat the least productive. The region's mass-market carmakers may not return to a profitable rate of more than 80 percent until 2014, according to a Nov. 30 research note.
Fiat's plans in Italy are aimed at ending losses estimated at 800 million euros a year, leading Marchionne to risk opposition. Fiom Cgil, Fiat's biggest union, has called for a general strike on Dec. 16, its second in less than two months.
Workers at the Termini Imerese plant blocked the last car from leaving the factory until Fiat agreed with unions and the government on Nov. 26 to pay about 21 million euros to support early retirements for about 640 workers. Other staff will be hired by DR Motor Co., which will pay 1 euro for the plant and will continue to assemble vehicles shipped from China's Chery Automotive there.
Fiat, which has threatened to stop production in Italy, canceled labor contracts after withdrawing from Italian employers' group Confindustria earlier this year in order to have a free hand in negotiating wage agreements. Talks on new Italian contracts started this week.
"The government is following with great attention" Fiat's plan for Italy "and it's ready to offer its constructive contribution," Labor Minister Elsa Fornero said last week. "As a Turin citizen, I can't stay quiet about Fiat. Big companies shouldn't leave the country."
Sources: Bloomberg and Reuters